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Legal Update

New Vietnamese Regulations on Labour Contracts

25 June 2009
Mayer Brown JSM Legal Update

On 26 May 2009, the Ministry of Labour, Invalids and Social Affairs of Vietnam issued Circular 17/2009/QD-BLDTBXH ("Circular 17") amending and supplementing a number of articles of Circular 21/2003/TT-BLDTBXH dated 22 September 2003 implementing Decree 44/2003/ND-CP dated 9 May 2003 relating to labour contracts.

Full Update

Under Circular 17, in the case of labour contracts signed with retired persons who currently are entitled to monthly retirement pensions and with persons working for durations of less than three months, the employees are entitled to receive their salaries plus the following payments calculated as a percentage of their salaries stated in their labour contracts:

(i) Social insurance equal to 15% from the effective date of Circular 17 to December 2009, increasing 1% every two years and to 18% as from January 2014;

(ii) Health insurance equal to 2%;

(iii) Annual leave equal to 4%; and

(iv) Travel expenses for annual leave as agreed upon in the labour contract.

Circular 17 also provides for the calculation and payment of severance allowances in the following cases:

(i) Where an employee has signed several labour contracts with one enterprise but he/she has not been paid any severance allowance upon expiry of each contract, the employer shall aggregate the working durations under such labour contracts in order to calculate the severance allowance for the employee;

(ii) If an employee terminates his/her labour contract as a result of a merger, consolidation or split of the enterprise, or the transfer of ownership, management right, or right to use the enterprise's assets, the succeeding employer shall be responsible for calculating the severance allowance, including the period during which the employee had worked for the immediately preceding employer.

The basis of calculating the severance allowance is the salary stated in the labour contract, using the average of the salaries for the six months immediately before the termination of the most recent labour contract.

Circular 17 will take effect from 10 July 2009. However, the calculation of severance allowances prescribed in this Circular is applicable as of 1 January 2009.

For inquiries related to this Client Alert, please contact:

Dao Nguyen ( )

Phuong Nguyen ( )

Hoang Ly Nguyen ( )

Learn more about our Vietnam offices and Employment & Benefits practice.

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